Disruption of mammary stromal-epithelial communication leads to aberrant mammary gland development and induces mammary tumorigenesis. Macrophages have been implicated in carcinogenesis primarily by creating an inflammatory microenvironment, which promotes growth of the adjacent epithelial cells. Adipocyte enhancer-binding protein 1 (AEBP1), a novel proinflammatory mediator, promotes macrophage inflammatory responsiveness by inducing NF-κB activity, which has been implicated in tumor cell growth and survival by aberrant sonic hedgehog (Shh) expression. Here, we show that stromal macrophage AEBP1 overexpression results in precocious alveologenesis in the virgin AEBP1 transgenic (AEBP1(TG)) mice, and the onset of ductal hyperplasia was accelerated in AEBP1(TG) mice fed a high fat diet, which induces endogenous AEBP1 expression. Transplantation of AEBP1(TG) bone marrow cells into non-transgenic (AEBP1(NT)) mice resulted in alveolar hyperplasia with up-regulation of NF-κB activity and TNFα expression as displayed in the AEBP1(TG) mammary macrophages and epithelium. Shh expression was induced in AEBP1(TG) macrophages and RAW264.7 macrophages overexpressing AEBP1. The Shh target genes Gli1 and Bmi1 expression was induced in the AEBP1(TG) mammary epithelium and HC11 mammary epithelial cells co-cultured with AEBP1(TG) peritoneal macrophages. The conditioned AEBP1(TG) macrophage culture media promoted NF-κB activity and survival signal, Akt activation, in HC11 cells, whereas such effects were abolished by TNFα neutralizing antibody treatment. Furthermore, HC11 cells displayed enhanced proliferation in response to AEBP1(TG) macrophages and their conditioned media. Our findings highlight the role of AEBP1 in the signaling pathways regulating the cross-talk between mammary epithelium and stroma that could predispose the mammary tissue to tumorigenesis.